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A majority of the briefs support South Dakota’s digital sales tax statute,
S.B. 106 (S.D. Codified Laws Chapter 10-64), which the South Dakota Supreme Court found unconstitutional
under
Quill—triggering the state to appeal to the U.S. Supreme Court.

The e-commerce retailers in the case—Wayfair, Overstock.com, Inc. and Newegg, Inc.—have
until March 28 to file their brief on the merits, and supporters of the companies
have until April 4 to file their friend-of-the-court briefs. Oral arguments in the
case are set for April 17, and a decision is expected by late June.

Congress Takes Stand

One
brief was penned on behalf of four U.S. Senators—Heidi Heitkamp (D-N.D.), Lamar Alexander
(R-Tenn.), Richard Durbin (D-Ill.), and Mike Enzi (R-Wyo.)—to tell the high court
that “Congress is fully prepared to act when needed.”

“Amici are filing this brief to demonstrate that overturning
Quill will not leave respondents and other out-of-state sellers without a Dormant Commerce
Clause defense and to assure the Court that Congress stands fully prepared to step
in if other states or localities, unlike South Dakota, seek to impose excessive burdens
on out-of-state retailers that become obligated to collect sales and use taxes,” according
to the brief.

The high court in
Quill said Congress was best suited to resolve the issue of state taxation of online sales,
but bills introduced over the years (including a handful in the current Congress)
have languished without a floor vote.

Advocating for a decision overturning
Quill, the senators argued in the brief that “vast confusion” won’t “ensue if the states
are freed from the bright-line rule of
Quill” for several reasons:

There is little evidence demonstrating that states would rush to enact a mass of
burdensome use tax collection laws. Further, technological advancements have driven
down compliance costs, thereby reducing the likelihood that states laws can impose
significant costs on remote retailers.

Overturning
Quill doesn’t mean that interstate vendors can’t be protected by the judicial system—several
laws and legal doctrines function to protect such sellers.

“Congress is standing by to act should states overstep"—especially if it deals with
overreaching by a “few states or by certain local tax schemes that collectively place
excessive burdens on out-of-state sellers.”

However, the office of Rep. Kristi Noem (R-S.D.), the sponsor of the pending
Remote Transactions Parity Act of 2017 (H.R. 2193) (RTPA)—which seeks to undo
Quill—told Bloomberg Tax that the RTPA needs be enacted before the Supreme Court hands
down a decision. It’s unclear, however, if there is support to pass a congressional
solution to the digital sales tax dispute after years of stalled competing proposals.

Rep. Bob Goodlatte (R-Va.), House Judiciary Committee chair, is often considered by
members in the state and local tax community as the biggest hurdle to e-commerce reform.
However, Goodlatte announced he will retire in November.

41-State Coalition

Another
brief— filed for Colorado and 40 other states, two U.S. territories, and the District of
Columbia—argued that
Quill‘s physical-presence standard should “wash away with the tides of time,” because of
“extraordinary advances in technology.”

The brief also argued that
Quill impairs states’ ability to deliver crucial government services because of sale tax
revenue shortfalls and infringes on states’ sovereignty, and the collection burdens
that prompted the physical-presence rule have drastically faded.

Colorado might be a curious leader of the coalition because of its unique reporting-style
law, which the e-commerce retailers opposing South Dakota’s law cited as a reason
the high court should maintain the
Quill standard.

The retailers have argued that the foundational criticism of
Quill—that the law prevents collection of taxes from remote sales—is faulty. In February
2016, the
U.S. Court of Appeals for the Tenth Circuit upheld as constitutional the 2010 Colorado law requiring out-of-state sellers that don’t
collect sales and use tax to (1) notify buyers at the time of transaction that tax
isn’t being collected but may be due, (2) provide consumers an annual report of their
purchases, and (3) send an annual report to the state showing total dollar amount
of each buyer’s purchases.

“As a result, notice and reporting laws have given the states ‘new tools for improving
consumer-based use tax compliance,’” according to the retailers’ December 2017
brief opposing Supreme Court review. They further noted that after the Tenth Circuit’s holding, several states followed
Colorado’s lead by adopting similar laws, including Louisiana, Pennsylvania, Rhode
Island, Vermont, and Washington.

There has been a frenzy of state activity this year, and in recent years, to adopt
varying regimes to expand state tax collection authority over online sales, whether
through notice-and-reporting laws, revised nexus thresholds based on sales figures,
or the newest: laws placing collection duties on Amazon-like marketplace providers
on behalf of the third-party sellers on their platforms.

Lawsuits designed to directly challenge
Quill, stemming from some of those new laws, also are pending in Alabama, Indiana, Ohio,
Tennessee, Virginia, and Wyoming. The DOR in Alabama has asked to stay the case pending
the high court’s resolution of the
Wayfair case.

Briefs Favoring South Dakota

As of March 5, parties filing briefs in favor of South Dakota included:

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